Going the Way of the Horse and Buggy: Comments on the Future, or Lack Thereof, of Pensions

These are two oddly complimentary stories, that tie closely to topics I have discussed regularly on this blog, including, among others, the difficulty faced by smaller shops of running a pension or other benefit plan, and the fact that no one at all wants to run a pension anymore. The first story is about a law firm in Detroit which is in the process of turning its pension plan over to the PBGC. What’s interesting about it is the sheer impracticality running a pension plan is for even a decent sized – but not massive – professional services firm. As the article notes, the coming and goings of partners, and the length of pension obligations, resulted in a plan in which “"you have people in the firm who aren't in the plan and people in the plan who aren't in the firm." Think about that for a minute. A law firm or other service entity isn’t really in the position of predicting out its obligations and future work force in the same way that a company with a large unionized or otherwise reasonably predictable workforce is; partners come, partners go, and you end up with the ones who stay funding a pension plan for the ones who have left. Heck, the routine collapses of law firms these days, even the biggest ones, make clear the folly of predicting that firms whose sole real assets are their intellectual capacity will be around long enough for a pension plan to survive and thrive.

And of course, as I have discussed in numerous posts, things aren’t much different even for companies with hard assets, most of whom have either gotten out of the pension business already or are now looking to do so by means of de-risking, which is the process of pursuing “options for transferring some or all of a sponsor's plan risk” to third-parties. This is a broad, deep and complicated topic that touches on a wide range of issues and disciplines, from finance to litigation risks to fiduciary prudence to ERISA. One of the best descriptions in a nutshell I have seen on this topic can be found in the second story I wanted to pass along today, which is Susan Mangiero’s excellent post on this subject on her blog, Pension Risk Matters. I highly recommend it as a starting point for understanding this topic.